FOR USE BY BANKS ONLY
March 31, 1995
DREYFUS PENNSYLVANIA INTERMEDIATE
MUNICIPAL BOND FUND
Supplement to Prospectus Dated March 31, 1995
All mutual fund shares involve certain investment risks,
including the possible loss of principal.
740/s050195IST
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
MARCH 31, 1995
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of
Dreyfus Pennsylvania Intermediate Municipal Bond Fund (the "Fund"), dated
March 31, 1995 as it may be revised from time to time. To obtain a copy of
the Fund's Prospectus, please write to the Fund at 144 Glenn Curtiss
Boulevard, Uniondale, New York 11556-0144, or call toll free
1-800-645-6561.
The Dreyfus Corporation (the "Manager") serves as the Fund's investment
adviser.
Premier Mutual Fund Services, Inc. (the "Distributor") is the distributor
of the Fund's shares.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies. . . . . . . . . . . . . . B-2
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . B-10
Management Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Shareholder Services Plan . . . . . . . . . . . . . . . . . . . . . . . B-15
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . B-16
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . B-17
Shareholder Services. . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . B-21
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . B-22
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . . . B-22
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . B-24
Information About the Fund. . . . . . . . . . . . . . . . . . . . . . . B-25
Custodian, Transfer and Dividend Disbursing Agent,
Counsel and Independent Auditors. . . . . . . . . . . . . . . . . . . B-25
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-26
Appendix B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-34
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . B-43
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . B-53
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Description of the Fund."
The average distribution of investments (at value) in Municipal
Obligations (including notes) by ratings for the period from December 16, 1993
(commencement of operations) to November 30, 1994, computed on a monthly
basis, was as follows:
Fitch Moody's Standard
Investors Investors & Poor's
Service, Inc. Service, Inc. Corporation Percentage
("Fitch") or ("Moody's") or ("S&P") of Value
-------------- ------------- ------------ ----------
AAA Aaa AAA 35.0%
AA Aa AA 16.1%
A A A 13.2%
BBB Baa BBB 14.6%
BB Ba BB 4.9%
F-1, F-1+ MIG 1, P-1, VMIG 1 SP-1, A-1, SP-1+ 9.6%
Not Rated Not Rated Not Rated 6.6% (*)
-------
100.0%
=======
- ---------------------------
(*) Included in the Not Rated category are securities comprising 6.6% of the
Fund's market value which, while not rated, have been determined by the
Manager to be of comparable quality to the following rating categories:
Baa/BBB (3.5%), Ba/BB (2.6%) and F-1, F-1+, MIG 1, P-1, VMIG 1, SP-1, A-1, SP-
1+ (0.5%).
Municipal Obligations. The term "Municipal Obligations" generally
includes debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which Municipal
Obligations may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and lending such funds to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide for the construction, equipment, repair or improvement of
privately operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, industrial, port or parking
facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal; the interest paid on such obligations may be exempt from Federal
income tax, although current tax laws place substantial limitations on the
size of such issues. Such obligations are considered to be Municipal
Obligations if the interest paid thereon qualifies as exempt from Federal
income tax in the opinion of bond counsel to the issuer. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but
which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such obligations ordinarily has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders thereof. The interest rate
on a floating rate demand obligation is based on a known lending rate, such
as a bank's prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand obligation is adjusted
automatically at specified intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation, and rating of the issue. The imposition
of the Fund's management fee, as well as other operating expenses, will have
the effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily
associated with Municipal Obligations. Although lease obligations do not
constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation ordinarily is
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has
no obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
The staff of the Securities and Exchange Commission currently considers
certain lease obligations to be illiquid. Determination as to the liquidity
of such securities is made in accordance with guidelines established by the
Fund's Board. Pursuant to such guidelines, the Board has directed the Manager
to monitor carefully the Fund's investment in such securities with particular
regard to (1) the frequency of trades and quotes for the lease obligation; (2)
the number of dealers willing to purchase or sell the lease obligation and the
number of other potential buyers; (3) the willingness of dealers to undertake
to make a market in the lease obligation; (4) the nature of the marketplace
trades including the time needed to dispose of the lease obligation, the
method of soliciting offers and the mechanics of transfer; and (5) such other
factors concerning the trading market for the lease obligation as the Manager
may deem relevant. In addition, in evaluating the liquidity and credit
quality of a lease obligation that is unrated, the Fund's Board has directed
the Manager to consider (a) whether the lease can be canceled; (b) what
assurance there is that the assets represented by the lease can be sold; (c)
the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (d) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an event of "nonappropriation"); (e) the
legal recourse in the event of failure to appropriate; and (f) such other
factors concerning credit quality as the Manager may deem relevant. The Fund
will not invest more than 15% of the value of its net assets in lease
obligations that are illiquid and in other illiquid securities. See
"Investment Restriction No. 11" below.
The Fund will purchase tender option bonds only when it is satisfied that
the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will not
have the effect of creating taxable income for the Fund. Based on the tender
option bond agreement, the Fund expects to be able to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that it is valued at fair value.
Illiquid Securities. If a substantial market of qualified institutional
buyers develops pursuant to Rule 144A under the Securities Act of 1933, as
amended, for certain restricted securities held by the Fund, the Fund intends
to treat such securities as liquid securities in accordance with procedures
approved by the Fund's Board of Trustees. Because it is not possible to
predict with assurance how the market for restricted securities pursuant to
Rule 144A will develop, the Fund's Board of Trustees has directed the Manager
to monitor carefully the Fund's investments in such securities with particular
regard to trading activity, availability of reliable price information and
other relevant information. To the extent that, for a period of time,
qualified institutional buyers cease purchasing restricted securities pursuant
to Rule 144A, the Fund's investing in such securities may have the effect of
increasing the level of illiquidity in the Fund's portfolio during such
period.
Ratings of Municipal Obligations. Subsequent to its purchase by the
Fund, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require the sale of such Municipal Obligations by the Fund,
but the Manager will consider such event in determining whether the Fund
should continue to hold the Municipal Obligations. To the extent that the
ratings given by Moody's, S&P or Fitch for Municipal Obligations may change
as a result of changes in such organizations or their rating systems, the Fund
will attempt to use comparable ratings as standards for its investments in
accordance with the investment policies contained in the Fund's Prospectus and
this Statement of Additional Information. The ratings of Moody's, S&P and
Fitch represent their opinions as to the quality of the Municipal Obligations
which they undertake to rate. It should be emphasized, however, that ratings
are relative and subjective and are not absolute standards of quality.
Although these ratings may be an initial criterion for selection of portfolio
investments, the Manager also will evaluate these securities and the
creditworthiness of the issuers of such securities.
Futures Contracts and Options on Futures Contracts. Upon exercise of an
option on a futures contract, the writer of the option delivers to the holder
of the option the futures position and the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price
of the futures contract exceeds, in the case of a call, or is less than, in
the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on a futures contract
is limited to the premium paid for the option (plus transaction costs).
Because the value of the option is fixed at the time of sale, there are no
daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund.
Lending Portfolio Securities. To a limited extent, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided it receives cash collateral which at all times is maintained in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, the Fund can increase its income
through the investment of the cash collateral. For purposes of this policy,
the Fund considers collateral consisting of U.S. Government securities or
irrevocable letters of credit issued by banks whose securities meet the
standards for investment by the Fund to be the equivalent of cash. From time
to time, the Fund may return to the borrower or a third party which is
unaffiliated with the Fund, and which is acting as a "placing broker," a part
of the interest earned from the investment of collateral received for
securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan, as well as any interest or other distributions payable
on the loaned securities, and any increase in market value; and (5) the Fund
may pay only reasonable custodian fees in connection with the loan. These
conditions may be subject to future modification.
Taxable Investments. Securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ in their interest rates, maturities and times of
issuance. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest.
Principal and interest may fluctuate based on generally recognized reference
rates or the relationship of rates. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law. The Fund will invest in such securities only
when it is satisfied that the credit risk with respect to the issuer is
minimal.
Commercial paper consists of short-term, unsecured promissory notes
issued to finance short-term credit needs.
Certificates of deposit are negotiable certificates representing the
obligation of a bank to repay funds deposited with it for a specified period
of time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
Investments in time deposits generally are limited to London branches of
domestic banks that have total assets in excess of one billion dollars. Time
deposits which may be held by the Fund will not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund administered
by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of
a bank to pay a draft drawn on it by a customer. These instruments reflect
the obligation both of the bank and of the drawer to pay the face amount of
the instrument upon maturity. Other short-term bank obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Repurchase agreements involve the acquisition by the Fund of an
underlying debt instrument, subject to an obligation of the seller to
repurchase, and the Fund to resell, the instrument at a fixed price usually
not more than one week after its purchase. The Fund's custodian or sub-
custodian will have custody of, and will hold in a segregated account,
securities acquired by the Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the Securities and Exchange
Commission to be loans by the Fund. In an attempt to reduce the risk of
incurring a loss on a repurchase agreement, the Fund will enter into
repurchase agreements only with domestic banks with total assets in excess of
one billion dollars or primary government securities dealers reporting to the
Federal Reserve Bank of New York, with respect to securities of the type in
which the Fund may invest, and will require that additional securities be
deposited with it if the value of the securities purchased should decrease
below resale price. The Manager will monitor on an ongoing basis the value
of the collateral to assure that it always equals or exceeds the repurchase
price. Certain costs may be incurred by the Fund in connection with the sale
of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the securities, realization on the
securities by the Fund may be delayed or limited. The Fund will consider on
an ongoing basis the creditworthiness of the institutions with which it enters
into repurchase agreements.
Risk Factors
Investing in Pennsylvania Municipal Obligations. Investors should
consider carefully the special risks inherent in the Fund's investment in
Pennsylvania Municipal Obligations. These risks result from the financial
condition of the Commonwealth of Pennsylvania. Pennsylvania has been
historically identified as a heavy industry state although that reputation has
recently changed as the coal, steel and railroad industries declined. A more
diversified economy has developed in Pennsylvania as a long-term shift in
jobs, investment and workers away from the northeast part of the nation took
place. The major new sources of growth are in the service sector, including
trade, medical and health services, education and financial institutions.
Pennsylvania is highly urbanized, with approximately 50% of the Commonwealth's
total population contained in the metropolitan areas which include the cities
of Philadelphia and Pittsburgh.
Pennsylvania's approved budget for fiscal 1993 authorized $14.046 billion
of spending, an increase of less than .25% over total appropriations for
fiscal 1992. The small increase in expenditures resulted from constraints on
revenues as a result of a personal tax rate reduction effective July 1, 1992,
a low rate of economic growth, higher tax refund reserves against adverse
decisions in pending litigation, and line item vetoes by the Governor. The
fund balance of the General Fund increased by $611.4 million during the 1993
fiscal year, led by an increase in the unreserved balance of $576.8 million
over the prior fiscal year balance. At June 30, 1993, the fund balance
totaled $698.9 and the unreserved-undesignated balance totaled $64.4 million.
A continuing recovery of the Commonwealth's financial condition from the
effects of the national economic recession of 1990 and 1991 is demonstrated
by this increase in the balance and a return to a positive unreserved-
undesigned balance. The previous positive unreserved-undesignated balance was
recorded in fiscal 1987. The Commonwealth maintained an operating balance on
a budgetary basis for fiscal 1994 producing a fiscal year ending
unappropriated surplus of $335.8 million.
Lower Rated Bonds. The Fund is permitted to invest in securities rated
below Baa by Moody's and below BBB by S&P and Fitch. Such bonds, though
higher yielding, are characterized by risk. See "Description of the Fund-
- -Risk Factors--Lower Rated Bonds" in the Prospectus for a discussion of
certain risks and "Appendix B" for a general description of Moody's, S&P and
Fitch ratings of Municipal Obligations. Although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of these bonds. The Fund will rely on the Manager's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer. In this evaluation, the Manager will take into consideration, among
other things, the issuer's financial resources, its sensitivity to economic
conditions and trends, the quality of the issuer's management and regulatory
matters. It also is possible that a rating agency might not timely change the
rating on a particular issue to reflect subsequent events. As stated above,
once the rating of a bond in the Fund's portfolio has been changed, the
Manager will consider all circumstances deemed relevant in determining whether
the Fund should continue to hold the bond.
Investors should be aware that the market values of many of these bonds
tend to be more sensitive to economic conditions than are higher rated
securities. These bonds are considered by S&P, Moody's and Fitch, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation and generally
will involve more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of these
securities, the Fund anticipates that such securities could be sold only to
a limited number of dealers or institutional investors. To the extent a
secondary trading market for these bonds does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a
liquid secondary market may have an adverse impact on market price and yield
and the Fund's ability to dispose of particular issues when necessary to meet
the Fund's liquidity needs or in response to a specific economic event such
as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities also may make it more difficult
for the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio and calculating its net asset value. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of these securities. In such cases,
judgment may play a greater role in valuation because less reliable objective
data may be available.
These bonds may be particularly susceptible to economic downturns. It
is likely that any economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
The Fund may acquire these bonds during an initial offering. Such
securities may involve special risks because they are new issues. The Fund
has no arrangement with any persons concerning the acquisition of such
securities, and the Manager will review carefully the credit and other
characteristics pertinent to such new issues.
Lower rated zero coupon securities, in which the Fund may invest up to
5% of its net assets, involve special considerations. The credit risk factors
pertaining to lower rated securities also apply to lower rated zero coupon
bonds. Such zero coupon bonds carry an additional risk in that, unlike bonds
which pay interest throughout the period to maturity, the Fund will realize
no cash until the cash payment date unless a portion of such securities are
sold and, if the issuer defaults, the Fund may obtain no return at all on its
investment. See "Dividends, Distributions and Taxes."
Investment Restrictions. The Fund has adopted investment restrictions
numbered 1 through 6 below as fundamental policies. These restrictions cannot
be changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 7 through 12 are
not fundamental policies and may be changed by vote of a majority of the
Trustees at any time. The Fund may not:
1. Borrow money, except to the extent permitted under the Act (which
currently limits borrowing to no more than 33-1/3% of the Fund's total
assets). For purposes of this investment restriction, the entry into options,
forward contracts, futures contracts, including those relating to indices, and
options on futures contracts or indices shall not constitute borrowing.
2. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests, but
this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein, or prevent the Fund from
purchasing and selling options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices.
3. Underwrite the securities of other issuers, except that the Fund may
bid separately or as part of a group for the purchase of Municipal Obligations
directly from an issuer for its own portfolio to take advantage of the lower
purchase price available, and except to the extent the Fund may be deemed an
underwriter under the Securities Act of 1933, as amended, by virtue of
disposing of portfolio securities.
4. Make loans to others except through the purchase of debt obligations
and the entry into repurchase agreements; however, the Fund may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the
Fund's Board of Trustees.
5. Invest more than 25% of its total assets in the securities of issuers
in any single industry; provided that there shall be no such limitation on the
purchase of Municipal Obligations and, for temporary defensive purposes,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
6. Issue any senior security (as such term is defined in Section 18(f)
of the Act), except to the extent that the activities permitted in Investment
Restriction Nos. 1, 2, 8 and 10 may be deemed to give rise to a senior
security.
7. Purchase securities other than Municipal Obligations and Taxable
Investments and those arising out of transactions in futures and options or
as otherwise provided in the Fund's Prospectus.
8. Purchase securities on margin, but the Fund may make margin deposits
in connection with transactions in options, forward contracts, futures,
including those relating to indices, and options on futures contracts or
indices.
9. Invest in securities of other investment companies, except to the
extent permitted under the Act.
10. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except to the extent necessary to secure borrowings for temporary or emergency
purposes and to the extent related to the deposit of assets in escrow in
connection with the purchase of securities on a when-issued or delayed-
delivery basis and the deposit of assets in escrow in connection with writing
covered put and call options and collateral and initial or variation margin
arrangements with respect to options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid (which
securities could include participation interests (including municipal
lease/purchase agreements) that are not subject to the demand feature
described in the Fund's Prospectus, and floating and variable rate demand
obligations as to which the Fund cannot exercise the demand feature described
in the Fund's Prospectus on less than seven days' notice and as to which there
is no secondary market) if, in the aggregate, more than 15% of its net assets
would be so invested.
12. Invest in companies for the purpose of exercising control.
For purposes of Investment Restriction No. 5, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry." If a percentage restriction is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in values or assets will not constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states.
Should the Fund determine that a commitment is no longer in the best interests
of the Fund and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Fund shares in the
state involved.
MANAGEMENT OF THE FUND
Trustees and officers of the Fund, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Trustee who is deemed to be an "interested person" of the Fund,
as defined in the Act, is indicated by an asterisk.
Trustees and Officers of the Fund
*DAVID W. BURKE, Trustee. Since August 1994, Consultant to the
Manager. From October 1990 to August 1994, Vice President and
Chief Administrative Officer of the Manager. From 1977 to
1990, Mr. Burke was involved in the management of national
television news, as Vice President and Executive Vice
President at ABC News, and subsequently as President of CBS
News. He is also a Board member of 49 other funds in the
Dreyfus Family of Funds. He is 58 years old and his address
is 200 Park Avenue, New York, New York 10166.
DIANE DUNST, Trustee. Since January 1992, President of Diane Dunst
Promotion, Inc., a full service promotion agency. From
January 1989 to January 1992, Director of Promotion Services,
Lear's Magazine. From 1985 to January 1989, she was Sales
Promotion Manager of ELLE Magazine. She is 55 years old and
her address is 120 E. 87th Street, New York, New York 10128.
*DAVID P. FELDMAN, Trustee. Chairman and Chief Executive Officer
of AT&T Investment Management Corporation. He also is a
trustee of Corporate Property Investors, a real estate
investment company. He is also a Board member of 38 other
funds in the Dreyfus Family of Funds. He is 55 years old and
his address is One Oak Way, Berkeley Heights, New Jersey
07922.
ROSALIND GERSTEN JACOBS, Trustee. Director of Merchandise and
Marketing for Corporate Property Investors, a real estate
investment company. From 1974 to 1976, she was owner and
manager of a merchandise and marketing consulting firm. Prior
to 1974, she was a Vice President of Macy's, New York. She is
also a Board member of 20 other funds in the Dreyfus Family of
Funds. She is 69 years old and her address is c/o Corporate
Property Investors, 305 East 47th Street, New York, New York
10017.
JAY I. MELTZER, Trustee. Physician engaged in private practice
specializing in internal medicine. He is also a member of the
Advisory Board of the Section of Society and Medicine, College
of Physicians and Surgeons, Columbia University and a Clinical
Professor of Medicine, Department of Medicine, Columbia
University College of Physicians and Surgeons. He is 66 years
old and his address is 903 Park Avenue, New York, New York
10021.
DANIEL ROSE, Trustee. President and Chief Executive Officer of
Rose Associates, Inc., a New York based real estate
development and management firm. He is also Chairman of the
Housing Committee of The Real Estate Board of New York, Inc.,
and a Trustee of Corporate Property Investors, a real estate
investment company. He is also a Board member of 21 other
funds in the Dreyfus Family of Funds. He is 65 years old and
his address is c/o Rose Associates, Inc., 380 Madison Avenue,
New York, New York 10017.
WARREN B. RUDMAN, Trustee. Since January 1993, Partner in the law
firm of Paul, Weiss, Rifkind, Wharton & Garrison. From
January 1981 to January 1993, Mr. Rudman served as a United
States Senator from the State of New Hampshire. Since January
1993, Mr. Rudman has also served as Vice Chairman of the
Federal Reserve Bank of Boston and as a director of Chubb
Corporation and Raytheon Company. Since 1988, Mr. Rudman has
also served as a trustee of Boston College and since 1986 as
a member of the Senior Advisory Board of the Institute of
Politics of the Kennedy School of Government at Harvard
University. He also serves as Deputy Chairman of the
President's Foreign Intelligence Advisory Board. He is also
a Board member of 17 other funds in the Dreyfus Family of
Funds. He is 64 years old and his address is c/o Paul, Weiss,
Rifkind, Wharton & Garrison, 1615 L Street, N.W., Washington,
D.C. 20036.
SANDER VANOCUR, Trustee. Since January 1992, President of Old Owl
Communications, a full-service communications firm. Since
November 1989, Mr. Vanocur has served as a Director of the
Damon Runyon-Walter Winchell Cancer Research Fund. From June
1986 to December 1991, he was a Senior Correspondent of ABC
News and, from October 1986 to December 31, 1991, he was
Anchor of the ABC News program "Business World," a weekly
business program on the ABC television network. He is also a
Board member of 21 other funds in the Dreyfus Family of Funds.
He is 66 years old and his address is 2928 P Street, N.W.,
Washington, D.C. 20007.
For so long as the Fund's plan described in the section captioned
"Shareholder Services Plan" remains in effect, the Trustees of the Fund who
are not "interested persons" of the Fund (as defined in the Act) will be
selected and nominated by the Trustees who are not "interested persons" of the
Fund.
Ordinarily, meetings of shareholders for the purpose of electing Trustees
will not be held unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Under the Act, shareholders of record of not less than two-thirds
of the outstanding shares of the Fund may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a meeting
called for that purpose. The Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
such Trustee when requested in writing to do so by the shareholders of record
of not less than 10% of the Fund's outstanding shares.
The Fund typically pays its Trustees an annual retainer and a per meeting
fee and reimburses them for their expenses. For the fiscal year ended
November 30, 1994, (except as otherwise noted) the aggregate amount of fees
and expenses received by each Trustee from the Fund and all other funds in the
Dreyfus Family of Funds for which such person is a Board member were as
follows:
<TABLE>
(5) Total
(3) Pension or Compensation From
(2) Aggregate Retirement Benefits (4) Estimated Annual Fund and Fund
(1) Name of Board Compensation from Accrued as Part of Benefits Upon Complex Paid to
Member Fund* Fund's Expenses Retirement Board Member
- ----------------- ------------------ ------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
David W. Burke $ 518 0 0 26,723
Diane Dunst $2,000 0 0 32,602
David P. Feldman $2,000 0 0 85,631
Rosalind Gersten Jacobs $ 829 0 0 57,638
Jay I. Meltzer $2,000 0 0 32,102
Daniel Rose $2,000 0 0 62,006
Warren B. Rudman $1,750 0 0 29,602
Sander Vanocur $2,000 0 0 62,006
</TABLE>
_____________________
* Amount does not include reimbursed expenses for attending Board meetings
which amounted to $153 for all Trustees as a group.
Officers of the Fund
MARIE E. CONNOLLY, President and Treasurer. President and Chief
Operating Officer of the Distributor and an officer of other
investment companies advised or administered by the Manager.
From December 1991 to July 1994, she was President and Chief
Compliance Officer of Funds Distributor, Inc., a wholly-owned
subsidiary of The Boston Company, Inc. Prior to December
1991, she served as Vice President and Controller, and later
as Senior Vice President, of The Boston Company Advisors, Inc.
JOHN E. PELLETIER, Vice President and Secretary. Senior Vice
President and General Counsel of the Distributor and an
officer of other investment companies advised or administered
by the Manager. From February 1992 to July 1994, he served as
Counsel for The Boston Company Advisors, Inc. From August
1990 to February 1992, he was employed as an Associate at
Ropes & Gray, and prior to August 1990, he was employed as an
Associate at Sidley & Austin.
FREDERICK C. DEY, Vice President and Assistant Treasurer. Senior
Vice President of the Distributor and an officer of other
investment companies advised or administered by the Manager.
From 1988 to August 1994, he was Manager of the High
Performance Fabric Division of Springs Industries Inc.
ERIC B. FISCHMAN, Vice President and Assistant Secretary.
Associate General Counsel of the Distributor and an officer of
other investment companies advised or administered by the
Manager. From September 1992 to August 1994, he was an
attorney with the Board of Governors of the Federal Reserve
System.
JOSEPH S. TOWER,III, Assistant Treasurer. Senior Vice President,
Treasurer and Chief Financial Officer of the Distributor and
an officer of other investment companies advised or
administered by the Manager. From July 1988 to August 1994,
he was employed by The Boston Company, Inc. where he held
various management positions in the Corporate Finance and
Treasury areas.
JOHN J. PYBURN, Assistant Treasurer. Vice President of the
Distributor, and an officer of other investment companies
advised or administered by the Manager. From 1984 to July
1994, he was Assistant Vice President in the Mutual Fund
Accounting Department of the Manager.
PAUL FURCINITO, Assistant Secretary. Assistant Vice President of
the Distributor and an officer of other investment companies
advised or administered by the Manager. From January 1992 to
July 1994, he was a Senior Legal Product Manager, and from
January 1990 to January 1992, he was mutual fund accountant,
for The Boston Company Advisors, Inc.
RUTH D. LEIBERT, Assistant Secretary. Assistant Vice President of
the Distributor and an officer of other investment companies
advised or administered by the Manager. From March 1992 to
July 1994, she was a Compliance Officer for The Managers
Funds, a registered investment company. From March 1990 until
September 1991, she was Development Director of The Rockland
Center for the Arts and, prior thereto, was employed as a
Research Assistant for the Bureau of National Affairs.
The address of each officer of the Fund is 200 Park Avenue, New York,
New York 10166.
Trustees and officers of the Fund, as a group, owned less than 1% of the
Fund's shares of beneficial interest outstanding on January 5, 1995.
MANAGEMENT AGREEMENT
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Management of the Fund."
The Manager provides management services pursuant to the Management
Agreement (the "Agreement") dated August 24, 1994 with the Fund, which is
subject to annual approval by (i) the Fund's Board of Trustees or (ii) vote
of a majority (as defined in the Act) of the outstanding voting securities of
the Fund, provided that in either event the continuance also is approved by
a majority of the Trustees who are not "interested persons" (as defined in the
Act) of the Fund or the Manager, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Agreement was approved by
shareholders on August 3, 1994 and last approved by the Board of Trustees,
including a majority of the Trustees who are not "interested persons" (as
defined in The Act) of the Fund or the Manager at a meeting held on May 27,
1994. The Agreement is terminable without penalty, on 60 days' notice, by the
Fund's Board of Trustees or by vote of the holders of a majority of the Fund's
shares, or, on not less than 90 days' notice, by the Manager. The Agreement
will terminate automatically in the event of its assignment (as defined in the
Act).
The following persons are officers and/or directors of the Manager:
Howard Stein, Chairman of the Board and Chief Executive Officer; Robert E.
Riley, President, Chief Operating Officer and a director; W. Keith Smith, Vice
Chairman and a director; Paul H. Synder, Vice President and Chief Financial
Officer; Lawrence S. Kash, Vice Chairman--Distribution and a director; Daniel
C. Maclean III, Vice President and General Counsel; Diane Coffey, Vice
President--Corporate Communications; Jeffrey N. Nachman, Vice President--Fund
Administration; Mark N. Jacobs, Vice President--Fund Legal and Compliance, and
Secretary; Henry D. Gottmann, Vice President--Retail; Philip L. Toia, Vice
Chairman--Operations and Administration; Katherine C. Wickham, Vice President-
- -Human Resources; Elie M. Genadry, Vice President--Wholesale; Barbara Casey,
Vice President--Retirement Services; Maurice Bendriham, Controller; and
Mandell L. Berman, Frank V. Cahouet, Alvin E. Friedman, Lawrence M. Greene and
David B. Truman, directors.
The Manager manages the Fund's portfolio of investments in accordance
with the stated policies of the Fund, subject to the approval of the Fund's
Board of Trustees. The Manager is responsible for investment decisions, and
provides the Fund with portfolio managers who are authorized by the Board of
Trustees to execute purchases and sales of securities. The Fund's portfolio
managers are Richard J. Moynihan, Joseph A. Darcy, A. Paul Disdier, Karen M.
Hand, Stephen C. Kris, Jill C. Shaffro, L. Lawrence Troutman, Samuel J.
Weinstock, and Monica S. Wieboldt. The Manager also maintains a research
department with a professional staff of portfolio managers and securities
analysts who provide research services for the Fund as well as for other funds
advised by the Manager. All purchases and sales are reported for the
Trustees' review at the meeting subsequent to such transactions.
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by the Manager. The expenses borne
by the Fund include: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Trustees who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Manager, Securities and Exchange Commission fees, state Blue Sky qualification
fees, advisory fees, charges of custodians, transfer and dividend disbursing
8-e agents' fees, certain insurance premiums, industry association fees, outside
auditing and legal expenses, costs of maintaining the Fund's existence, costs
of independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
shareholders' reports and meetings, costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders, and any extraordinary expenses.
The Manager maintains office facilities on behalf of the Fund and
furnishes statistical and research data, clerical help, accounting, data
processing, bookkeeping and internal auditing and certain other required
services to the Fund. The Manager also may make such advertising and
promotional expenditures, using its own resources, as it from time to time
deems appropriate.
As compensation for the Manager's services, the Fund has agreed to pay
the Manager a monthly management fee at the annual rate of .60 of 1% of the
value of the Fund's average daily net assets. All fees and expenses are
accrued daily and deducted before the declaration of dividends to
shareholders. For the period December 16, 1993 (commencement of operations)
through November 30, 1994, no management fee was paid by the Fund pursuant to
an undertaking by the Manager.
The Manager has agreed that if in any fiscal year the aggregate expenses
of the Fund, exclusive of taxes, brokerage, interest on borrowings and (with
the prior written consent of the necessary state securities commissions)
extraordinary expenses, but including the management fee, exceed the expense
limitation of any state having jurisdiction over the Fund, the Fund may deduct
from the payment to be made to the Manager under the Agreement, or the Manager
will bear, such excess expense to the extent required by state law. Such
deduction or payment, if any, will be estimated daily, and reconciled and
effected or paid, as the case may be, on a monthly basis.
The aggregate of the fees payable to the Manager is not subject to
reduction as the value of the Fund's net assets increases.
SHAREHOLDER SERVICES PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services
Plan."
The Fund has adopted a Shareholder Services Plan (the "Plan") pursuant
to which the Fund reimburses Dreyfus Service Corporation, a wholly-owned
subsidiary of the Manager, for certain allocated expenses of providing
personal services and/or maintaining shareholder accounts. The services
provided may include personal services relating to shareholder accounts, such
as answering shareholder inquiries regarding the Fund and providing reports
and other information, and services related to the maintenance of shareholder
accounts.
A quarterly report of the amounts expended under the Plan, and the
purposes for which such expenditures were incurred, must be made to the
Trustees for their review. In addition, the Plan provides that material
amendments of the Plan must be approved by the Board of Trustees, and by the
Trustees who are not "interested persons" (as defined in the Act) of the Fund
and have no direct or indirect financial interest in the operation of the Plan
by vote cast in person at a meeting called for the purpose of considering such
amendments. The Plan is subject to annual approval by such vote of the
Trustees cast in person at a meeting called for the purpose of voting on the
Plan. The Plan is terminable at any time by vote of a majority of the
Trustees who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Plan.
For the period December 16, 1993 (commencement of operations) through
November 30, 1994, no amounts were charged to the Fund under the Plan.
PURCHASE OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
The Distributor. The Distributor serves as the Fund's distributor
pursuant to an agreement which is renewable annually. The Distributor also
acts as distributor for the other funds in the Dreyfus Family of Funds and for
certain other investment companies.
Services Charges. There is no sales or service charge by the Fund or the
Distributor, although investment dealers, banks and other institutions may
make reasonable charges to investors for their services. The services
provided and the applicable fees are established by each dealer or other
institution acting independently of the Fund. The Fund has been given to
understand that these fees may be charged for customer services including, but
not limited to, same-day investment of client funds; same-day access to client
funds; advice to customers about the status of their accounts, yield currently
being paid or income earned to date; provision of periodic account statements
showing security and money market positions; other services available from the
dealer, bank or other institution; and assistance with inquiries related to
their investment. Any such fees will be deducted monthly from the investor's
account, which on smaller accounts could constitute a substantial portion of
distributions. Small, inactive, long-term accounts involving monthly service
charges may not be in the best interest of investors. Investors should be
aware that they may purchase shares of the Fund directly from the Fund without
imposition of any maintenance or service charges, other than those already
described herein. In some states, banks or other financial institutions
effecting transactions in Fund shares may be required to register as dealers
pursuant to state law.
Dreyfus TeleTransfer Privilege. Dreyfus TeleTransfer purchase orders may
be made between the hours of 8:00 a.m. and 4:00 p.m., New York time, on any
business day that The Shareholder Services Group, Inc., the Fund's transfer
and dividend disbursing agent (the "Transfer Agent"), and the New York Stock
Exchange are open. Such purchases will be credited to the shareholder's Fund
account on the next bank business day. To qualify to use the Dreyfus
TeleTransfer Privilege, the initial payment for purchase of Fund shares must
be drawn on, and redemption proceeds paid to, the same bank and account as are
designated in the Account Application or Shareholder Services Form on file.
If the proceeds of a particular redemption are to be wired to an account at
any other bank, the request must be in writing and signature-guaranteed. See
"Redemption of Fund Shares--Dreyfus TeleTransfer Privilege."
Reopening an Account. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the
calendar year, provided the information on the old Account Application is
still applicable.
REDEMPTION OF FUND SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Redeem Fund
Shares."
Check Redemption Privilege. An investor may indicate on the Account
Application or by later written request that the Fund provide Redemption
Checks ("Checks") drawn on the Fund's account. Checks will be sent only to
the registered owner(s) of the account and only to the address of record. The
Account Application or later written request must be manually signed by the
registered owner(s). Checks may be made payable to the order of any person
in an amount of $500 or more. When a Check is presented to the Transfer Agent
for payment, the Transfer Agent, as the investor's agent, will cause the Fund
to redeem a sufficient number of shares in the investor's account to cover the
amount of the Check. Dividends are earned until the Check clears. After
clearance, a copy of the Check will be returned to the investor. Investors
generally will be subject to the same rules and regulations that apply to
checking accounts, although election of this Privilege creates only a
shareholder-transfer agent relationship with the Transfer Agent.
If the amount of the Check is greater than the value of the shares in an
investor's account, the Check will be returned marked insufficient funds.
Checks should not be used to close an account.
Wire Redemption Privilege. By using this Privilege, the investor
authorizes the Transfer Agent to act on wire or telephone redemption
instructions from any person representing himself or herself to be the
investor and reasonably believed by the Transfer Agent to be genuine.
Ordinarily, the Fund will initiate payment for shares redeemed pursuant to
this Privilege on the next business day after receipt if the Transfer Agent
receives the redemption request in proper form. Redemption proceeds will be
transferred by Federal Reserve wire only to the commercial bank account
specified by the investor on the Account Application or Shareholder Services
Form. Redemption proceeds, if wired, must be in the amount of $1,000 or more
and will be wired to the investor's account at the bank of record designated
in the investor's file at the Transfer Agent, if the investor's bank is a
member of the Federal Reserve System, or to a correspondent bank if the
investor's bank is not a member. Fees ordinarily are imposed by such bank and
usually are borne by the investor. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account.
Investors with access to telegraphic equipment may wire redemption
requests to the Transfer Agent by employing the following transmittal code
which may be used for domestic or overseas transmissions:
Transfer Agent's
Transmittal Code Answer Back Sign
---------------- -----------------
144295 144295 TSSG PREP
Investors who do not have direct access to telegraphic equipment may have
the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171,
toll free. Investors should advise the operator that the above transmittal
code must be used and should also inform the operator of the Transfer Agent's
answer back sign.
To change the commercial bank or account designated to receive wire
redemption proceeds, a written request must be sent to the Transfer Agent.
This request must be signed by each shareholder, with each signature
guaranteed as described below under "Stock Certificates; Signatures."
Dreyfus TeleTransfer Privilege. Investors should be aware that if they
have selected the Dreyfus TeleTransfer Privilege, any request for a wire
redemption will be effected as a Dreyfus TeleTransfer transaction through the
Automated Clearing House ("ACH") system unless more prompt transmittal
specifically is requested. Redemption proceeds will be on deposit in the
investor's account at that ACH member bank ordinarily two business days after
receipt of the redemption request. See "Purchase of Fund Shares--Dreyfus
TeleTransfer Privilege."
Share Certificates; Signatures. Any certificates representing Fund
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder
of a joint account, and each signature must be guaranteed. Signatures on
endorsed certificates submitted for redemption also must be guaranteed. The
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations, as well as from participants in the New York Stock Exchange
Medallion Signature Program, the Securities Transfers Agents Medallion Program
("STAMP") and the Stock Exchanges Medallion Program. Guarantees must be
signed by an authorized signatory of the guarantor and "Signature-Guaranteed"
must appear with the signature. The Transfer Agent may request additional
documentation from corporations, executors, administrators, trustees or guard-
ians, and may accept other suitable verification arrangements from foreign
investors, such as consular verification. For more information with respect
to signature-guarantees, please call the telephone number listed on the cover.
Redemption Commitment. The Fund has committed itself to pay in cash all
redemption requests by any shareholder of record, limited in amount during any
90-day period to the lesser of $250,000 or 1% or the value of the Fund's net
assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the Securities and Exchange Commission. In the
case of requests for redemption in excess of such amount, the Board of
Trustees reserves the right to make payments in whole or in part in securities
or other assets in case of an emergency or any time a cash distribution would
impair the liquidity of the Fund to the detriment of the existing
shareholders. In such event, the securities would be valued in the same
manner as the Fund's portfolio is valued. If the recipient sold such
securities, brokerage charges would be incurred.
Suspension of Redemptions. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closings), (b)
when trading in the markets the Fund ordinarily utilizes is restricted, or
when an emergency exists as determined by the Securities and Exchange
Commission so that disposal of the Fund's investments or determination of its
net asset value is not reasonably practicable, or (c) for such other periods
as the Securities and Exchange Commission by order may permit to protect the
Fund's shareholders.
SHAREHOLDER SERVICES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Shareholder Services."
Fund Exchanges. Shares of other funds purchased by exchange will be
purchased on the basis of relative net asset value per share as follows:
A. Exchanges for shares of funds that are offered without a
sales load will be made without a sales load.
B. Shares of funds purchased without a sales load may be
exchanged for shares of other funds sold with a sales
load, and the applicable sales load will be deducted.
C. Shares of funds purchased with a sales load may be
exchanged or transferred without a sales load for shares
of other funds sold without a sales load.
D. Shares of funds purchased with a sales load, shares of
funds acquired by a previous exchange from shares
purchased with a sales load and additional shares acquired
through reinvestment of dividends or distributions of any
such funds (collectively referred to herein as "Purchased
Shares") may be exchanged for shares of other funds sold
with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to
the Offered Shares exceeds the maximum sales load that
could have been imposed in connection with the Purchased
Shares (at the time the Purchased Shares were acquired),
without giving effect to any reduced loads, the difference
will be deducted.
To accomplish an exchange or transfer under item D above, shareholders
must notify the Transfer Agent of their prior ownership of fund shares and
their account number.
To request an exchange, an investor must give exchange instructions to
the Transfer Agent in writing, by wire or by telephone. The ability to issue
exchange instructions by telephone is given to all Fund shareholders
automatically, unless the investor checks the applicable "NO" box on the
Account Application, indicating that the investor specifically refuses this
Privilege. By using this Privilege, the investor authorizes the Transfer
Agent to act on telephonic, the Telephone Exchange instructions from any
person representing himself or herself to be the investor, and reasonably
believed by the Transfer Agent to be genuine. Telephone exchanges may be
subject to limitations as to the amount involved or the number of telephone
exchanges permitted. Shares issued in certificate form are not eligible for
telephone exchange.
To establish a Personal Retirement Plan by exchange, shares of the fund
being exchanged must have a value of at least the minimum initial investment
required for the fund into which the exchange is being made. For Dreyfus-
sponsored Keogh Plans, IRAs and IRAs set up under a Simplified Employee
Pension Plan ("SEP-IRAs") with only one participant, the minimum initial
investment is $750. To exchange shares held in Corporate Plans, 403(b)(7)
Plans and SEP-IRAs with more than one participant, the minimum initial
investment is $100 if the plan has at least $2,500 invested among the funds
in the Dreyfus Family of Funds. To exchange shares held in Personal
Retirement Plans, the shares exchanged must have a current value of at least
$100.
Dreyfus Auto-Exchange Privilege. Dreyfus Auto-Exchange Privilege permits
an investor to purchase, in exchange for shares of the Fund, shares of another
fund in the Dreyfus Family of Funds. This Privilege is available only for
existing accounts. Shares will be exchanged on the basis of relative net
asset value as described above under "Fund Exchanges." Enrollment in or
modification or cancellation of this Privilege is effective three business
days following notification by the investor. An investor will be notified if
his account falls below the amount designated to be exchanged under this
Privilege. In this case, an investor's account will fall to zero unless
additional investments are made in excess of the designated amount prior to
the next Auto-Exchange transaction. Shares held under IRA and other
retirement plans are eligible for this Privilege. Exchange of IRA shares may
be made between IRA accounts and from regular accounts to IRA accounts, but
not from IRA accounts to regular accounts. With respect to all other
retirement accounts, exchanges may be made only among those accounts.
Fund Exchanges and the Dreyfus Auto-Exchange Privilege are available to
shareholders resident in any state in which shares of the fund being acquired
may legally be sold. Shares may be exchanged only between accounts having
identical names and other identifying designations.
Shareholder Services Forms and prospectuses of the other funds may be
obtained by calling 1-800-645-6561. The Fund reserves the right to reject any
exchange request in whole or in part. The Fund Exchanges Service or the
Dreyfus Auto-Exchange Privilege may be modified or terminated at any time upon
notice to shareholders.
Automatic Withdrawal Plan. The Automatic Withdrawal Plan permits an
investor with a $5,000 minimum account to request withdrawal of a specified
dollar amount (minimum of $50) on either a monthly or quarterly basis.
Withdrawal payments are the proceeds from sales of Fund shares, not the yield
on the shares. If withdrawal payments exceed reinvested dividends and distri-
butions, the investor's shares will be reduced and eventually may be depleted.
There is a service charge of $.50 for each withdrawal check. Automatic
Withdrawal may be terminated at any time by the investor, the Fund or the
Transfer Agent. Shares for which certificates have been issued may not be
redeemed through the Automatic Withdrawal Plan.
Dreyfus Dividend Sweep. Dreyfus Dividend Sweep allows investors to
invest on the payment date their dividends or dividends and capital gain
distributions, if any, from the Fund in shares of another fund in the Dreyfus
Family of Funds of which the investor is a shareholder. Shares of other funds
purchased pursuant to this privilege will be purchased on the basis of
relative net asset value per share as follows:
A. Dividends and distributions paid by a fund may be invested
without imposition of a sales load in shares of other
funds that are offered without a sales load.
B. Dividends and distributions paid by a fund which does not
charge a sales load may be invested in shares of other
funds sold with a sales load, and the applicable sales
load will be deducted.
C. Dividends and distributions paid by a fund which charges
a sales load may be invested in shares of other funds sold
with a sales load (referred to herein as "Offered
Shares"), provided that, if the sales load applicable to
the Offered Shares exceeds the maximum sales load charged
by the fund from which dividends or distributions are
being swept, without giving effect to any reduced loads,
the difference will be deducted.
D. Dividends and distributions paid by a fund may be invested
in shares of other funds that impose a contingent deferred
sales charge ("CDSC") and the applicable CDSC, if any,
will be imposed upon redemption of such shares.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "How to Buy Fund Shares."
Valuation of Portfolio Securities. The Fund's investments are valued by
an independent pricing service (the "Service") approved by the Board of
Trustees. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of
the market, these investments are valued at the mean between the quoted bid
prices (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market
for such securities). Other investments (which constitute a majority of the
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal bonds of comparable quality, coupon, maturity and type; indications
as to values from dealers; and general market conditions. The Service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The Service's procedures are reviewed by the Fund's
officers under the general supervision of the Board of Trustees. Expenses and
fees, including the management fee (reduced by the expense limitation, if
any), are accrued daily and are taken into account for the purpose of
determining the net asset value of Fund shares.
New York Stock Exchange Closings. The holidays (as observed) on which
the New York Stock Exchange is closed currently are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly-issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which it appears that the
best price or execution will be obtained. Usually no brokerage commissions,
as such, are paid by the Fund for such purchases and sales, although the price
paid usually includes an undisclosed compensation to the dealer acting as
agent. The prices paid to underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and purchases of
after-market securities from dealers ordinarily are executed at a price
between the bid and asked price. No brokerage commissions have been paid by
the Fund to date.
Transactions are allocated to various dealers by the Fund's portfolio
managers in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for research, statistical or
other services to enable the Manager to supplement its own research and
analysis with the views and information of other securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Manager in advising other funds it
advises and, conversely, research services furnished to the Manager by brokers
in connection with other funds the Manager advises may be used by the Manager
in advising the Fund. Although it is not possible to place a dollar value on
these services, it is the opinion of the Manager that the receipt and study
of such services should not reduce the overall expenses of its research
department.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Dividends, Distributions
and Taxes."
The Internal Revenue Code of 1986, as amended (the "Code"), provides that
if a shareholder has not held his Fund shares for more than six months (or
such shorter period as the Internal Revenue Service may prescribe by
regulation) and has received an exempt-interest dividend with respect to such
shares, any loss incurred on the sale of such shares shall be disallowed to
the extent of the exempt-interest dividend received. In addition, any
dividend or distribution paid shortly after an investor's purchase may have
the effect of reducing the net asset value of his shares below the cost of his
investment. Such a distribution should be a return on the investment in an
economic sense although taxable as stated in "Dividends, Distributions and
Taxes" in the Prospectus.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of any gain
realized from the sale or other disposition of certain market discount bonds
will be treated as ordinary income under Section 1276 of the Code. In
addition, all or a portion of the gain realized from engaging in "conversion
transactions" may be treated as ordinary income under Section 1258.
"Conversion transactions" are defined to include certain forward, futures,
option and "straddle" transactions, transactions marketed or sold to produce
capital gains, or transactions described in Treasury regulations to be issued
in the future.
Under Section 1256 of the Code, gain or loss realized by the Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain
or loss will arise upon exercise or lapse of such futures and options as well
as from closing transactions. In addition, any such futures or options
remaining unexercised at the end of the Fund's taxable year will be treated
as sold for their then fair market value, resulting in additional gain or loss
to the Fund characterized in the manner described above.
Offsetting positions held by the Fund involving certain financial futures
contracts or options transactions may be considered, for tax purposes, to
constitute "straddles". "Straddles" are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of
"straddles" is governed by Sections 1092 and 1258 of the Code, which, in
certain circumstances, overrides or modifies the provisions of Section 1256.
As such all or a portion of any short or long term capital gain from certain
"straddle" and/or conversion transactions may be recharacterized to ordinary
income.
If the Fund were treated as entering into "straddles" by reasons of its
engaging in financial futures contracts or options transactions, such
"straddles" would be characterized as "mixed straddles" if the futures or
options comprising apart of such "straddles" were governed by Section 1256 of
the Code. The Fund may make one or more elections with respect to "mixed
straddles". If no election is made, to the extent the straddle rules apply
to positions established by the Fund, losses realized by the Fund will be
deferred to the extent of unrealized gain in any offsetting positions.
Moreover, as a result of the straddle and conversion transaction rules, short-
term capital loss on straddle positions may be recharacterized as long-term
capital loss, and long-term capital gain may be recharacterized as short-term
capital gain or ordinary income.
Investment by the Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to shareholders. For example, the Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion
in order to maintain its qualification as a regulated investment company. In
such case, the Fund may have to dispose of securities which it might otherwise
have continued to hold in order to generate cash to satisfy these distribution
requirements.
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "Performance Information."
For the 30-day period ended November 30, 1994, the Fund's yield was
5.98%. The Fund's yield reflects the absorption of certain expenses by the
Manager and the waiver of the management fee without which the Fund's yield
for the 30-day period ended November 30, 1994 would have been 4.82%. Current
yield is computed pursuant to a formula which operates as follows: The amount
of the Fund's expenses accrued for the 30-day period (net of reimbursements)
is subtracted from the amount of the dividends and interest earned (computed
in accordance with regulatory requirements) by the Fund during the period.
That result is then divided by the product of: (a) the average daily number
of shares outstanding during the period that were entitled to receive
dividends, and (b) the net asset value per share on the last day of the period
less any undistributed earned income per share reasonably expected to be
declared as a dividend shortly thereafter. The quotient is then added to 1,
and that sum is raised to the 6th power, after which 1 is subtracted. The
current yield is then arrived at by multiplying the result by 2.
Based upon a combined 1995 Federal and Pennsylvania personal income tax
rate of 41.29%, the Fund's tax equivalent yield for the period ended November
30, 1994 was 10.19%. Without the absorption of certain expenses and the
waiver of the management fee, the Fund's tax equivalent yield for the period
ended November 30, 1994 would have been 8.21%. Tax equivalent yield is
computed by dividing that portion of the yield or effective yield (calculated
as described above) which is tax exempt by 1 minus a stated tax rate and
adding the quotient to that portion, if any, of the yield of the Fund that is
not tax exempt.
The tax equivalent yield noted above represents the application of the
highest Federal and Commonwealth of Pennsylvania marginal personal income tax
rates in effect during 1994. For Federal income tax purposes, a 39.60% tax
rate has been used and, for Pennsylvania personal income tax purposes, a 2.80%
tax rate has been used. The tax equivalent figure, however, does not reflect
the potential effect of any local (including, but not limited to, county,
district or city) taxes, including applicable surcharges. In addition, there
may be pending legislation which could affect such stated tax rates or yield.
Each investor should consult its tax adviser, and consider its own factual
circumstances and applicable tax laws, in order to ascertain the relevant tax
equivalent yield.
For the period from the Fund's commencement of operations on December 16,
1993 through November 30, 1994, the Fund's total return was -0.58%. Total
return is calculated by subtracting the amount of the Fund's net asset value
per share at the beginning of a stated period from the net asset value per
share at the end of the period (after giving effect to the reinvestment of
dividends and distributions during the periods), and dividing the result by
the net asset value per share at the beginning of the period.
For the period from the Fund's commencement of operations on December 16,
1993 through November 30, 1994, the Fund's average annual total return was -
0.60%. Average annual total return is calculated by determining the ending
redeemable value of an investment purchased with a hypothetical $1,000 payment
made at the beginning of the period (assuming the reinvestment of dividends
and distributions), dividing by the amount of the initial investment, taking
the "n"th root of the quotient (where "n" is the number of years in the
period) and subtracting 1 from the result.
From time to time, the Fund may use hypothetical tax equivalent yields
or charts in its advertising. These hypothetical yields or charts will be
used for illustrative purposes only and are not indicative of the Fund's past
or future performance.
From time to time, advertising materials for the Fund may refer to or
discuss then-current or past economic conditions, developments and/or events,
and actual or proposed tax legislation. From time to time, advertising
materials for the Fund may also refer to statistical or other information
concerning trends relating to investment companies, as compiled by industry
associations such as the Investment Company Institute. From time to time,
advertising materials for the Fund also may refer to Morningstar ratings and
related analyses supporting the rating.
INFORMATION ABOUT THE FUND
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "General Information."
Each Fund share has one vote and, when issued and paid for in accordance
with the terms of the offering, is fully paid and non-assessable. Fund shares
are of one class and have equal rights as to dividends and in liquidation.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
The Fund will send annual and semi-annual financial statements to all its
shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 110 Washington Street, New York, New York 10286,
is the Fund's custodian. The Shareholder Services Group, Inc., a subsidiary
of First Data Corporation, P.O. Box 9671, Providence, Rhode Island 02940-9671,
is the Fund's transfer and dividend disbursing agent. Neither The Bank of New
York nor The Shareholder Services Group, Inc. has any part in determining the
investment policies of the Fund or which securities are to be purchased or
sold by the Fund.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-
2696, as counsel for the Fund, has rendered its opinion as to certain legal
matters regarding the due authorization and valid issuance of the shares of
beneficial interest being sold pursuant to the Fund's Prospectus.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
independent auditors, have been selected as auditors of the Fund.
APPENDIX A
Risk Factors--Investing
In Pennsylvania Municipal Obligations
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the Commonwealth of
Pennsylvania (the "Commonwealth") and various local agencies, available as of
the date of this Statement of Additional Information. While the Fund has not
independently verified such information, it has no reason to believe that such
information is not correct in all material respects.
General. Pennsylvania historically has been identified as a heavy
industry state, although that reputation has changed with the decline of the
coal, steel and railroad industries and the resulting diversification of
Pennsylvania's economy. The major new sources of economic growth in
Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be
an important component of the Commonwealth's economic structure, with nearly
one-fourth of the Commonwealth's total land area devoted to cropland, pasture
and farm woodlands.
The population of Pennsylvania experienced a slight increase in the
period from 1984 to 1993 and has a high proportion of persons 65 or older.
The Commonwealth is highly urbanized, with almost 85% of the 1990 census
population residing in metropolitan statistical areas. The cities of
Philadelphia and Pittsburgh, the Commonwealth's largest metropolitan
statistical areas, together comprise approximately 50% of the Commonwealth's
total population.
Pennsylvania's average annual unemployment rate remained below the
national average between 1986 and 1990. Slower economic growth caused the
rate to rise to 6.9% in 1991, 7.5% in 1992 and 7.0% in 1993, slightly above
the national average. Seasonally adjusted data for February 1994, however,
shows an unemployment rate of 5.1% compared to an unemployment rate of 6.5%
for the United States as a whole.
Financial Accounting. Pennsylvania utilizes the fund method of
accounting and over 140 funds have been established for purposes of recording
receipts and disbursements, of which the General Fund is the largest. Most
of the Pennsylvania's operating and administrative expenses are payable from
the General Fund. The Motor License Fund is a special revenue fund that
receives tax and fee revenues relating to motor fuels and vehicles (except
one-half cent per gallon of the liquid fuels tax which is deposited in the
Liquid Fuels Tax Fund for distribution to local municipalities) and all such
revenues are required to be used for highway purposes. Other special revenue
funds have been established to receive specified revenues appropriated to
specific departments, boards and/or commissions. Such funds include the Game,
Fish, Boat, Banking Department, Milk Marketing, State Farm Products Show,
State Racing and State Lottery Funds. The General Fund, all special revenue
funds, the Debt Service Funds and the Capital Project Funds combine to form
the Governmental Fund Types.
Enterprise funds are maintained for departments or programs operated like
private enterprises. The largest of the Enterprise funds is the State Stores
Fund, which is used for the receipts and disbursements of the Commonwealth's
liquor store system. Sale and distribution of all liquor within Pennsylvania
is a government enterprise.
Financial information for the funds is maintained on a budgetary basis
of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting
principles ("GAAP"). The GAAP statements have been audited jointly by the
Auditor General of the Commonwealth and an independent public accounting firm.
The Budgetary information is adjusted at fiscal year end to reflect
appropriate accruals for financial reporting in conformity with GAAP. The
Commonwealth maintains a June 30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the estimated revenues and available surplus in
the fiscal year for which funds are appropriated. Annual budgets are enacted
for the General Fund and for certain special revenue funds which represent the
majority of expenditures of the Commonwealth.
Revenues and Expenditures. Pennsylvania's Governmental Fund Types
receive over 57% of their revenues from taxes levied by the Commonwealth.
Interest earnings, licenses and fees, lottery ticket sales, liquor store
profits, miscellaneous revenues, augmentations and federal government grants
supply the balance of the receipts of these funds. Revenues not required to
be deposited in another fund are deposited in the General Fund. The major tax
sources for the General Fund are the 6% sales and use tax (33% of General Fund
revenues in fiscal 1993), the 2.8% personal income tax (32.7% of General Fund
revenues in fiscal 1993) and the 12.25% corporate net income tax (10.0% of
General Fund revenues in fiscal 1993). Tax and fee proceeds relating to motor
fuels and vehicles are constitutionally dedicated to highway purposes and are
deposited into the Motor License Fund. The major sources of revenue for the
Motor License Fund include the liquid fuels tax, the oil company franchise
tax, aviation taxes and revenues from fees levied on heavy trucks. These
revenues are restricted to the repair and construction of highway bridges and
aviation programs. Lottery ticket sales revenues are deposited in the State
Lottery Fund and are reserved by statute for programs to benefit senior
citizens.
Pennsylvania's major expenditures include funding for education ($6.2
billion of fiscal 1993 expenditures and $6.4 billion of the fiscal 1994
budget) and public health and human services ($11.7 billion of fiscal 1993
expenditures and $12.7 billion of the fiscal 1994 budget).
Governmental Fund Types: Financial Condition/Results of Operations (GAAP
Basis). Reduced revenue growth and increased expenses contributed to negative
unreserved-undesignated fund balances of the Governmental Fund Types at the
end of the 1990 and 1991 fiscal years, largely due to operating deficits in
the General Fund and State Lottery Fund during those years. Actions taken
during fiscal 1992 to bring the General Fund back into balance, including tax
increases and expenditure restraints, resulted in a $1.1 billion reduction to
the unreserved-undesignated fund deficit for combined Governmental Fund Types
and a return to a positive fund balance. At the end of fiscal 1993, the total
fund balance and other credits for the total Governmental Fund Types was
$1.960 billion, an increase of $732.1 million from the balance at the end of
fiscal year 1992. During fiscal 1993, total assets for all Governmental Fund
Types increased by $1.297 billion to $7.1 billion, while liabilities increased
$564.6 million to $5.137 billion.
General Fund: Financial Condition/Results of Operations.
Five Year Overview (GAAP Basis). The five year period from fiscal 1989
through fiscal 1993 was marked by public health and welfare costs growing at
a rate double the growth rate for all the state expenditures. Rising
caseloads, increased utilization of services and rising prices joined to
produce the rapid rise of public health and welfare costs at a time when a
national recession caused tax revenues to stagnate and even decline. During
the period from fiscal 1989 through fiscal 1993, public health and welfare
costs rose by an average annual rate of 10.9% while tax revenues were growing
at an average annual rate of 5.5%. Consequently, spending on other budget
programs was restrained to a growth rate below 5.0% and sources of revenues
other than taxes became larger components of fund revenues. Those sources
included transfers from other funds and hospital and nursing home pooling of
contributions to use as federal matching funds.
Fiscal 1992 Financial Results (GAAP Basis). During fiscal 1992, the
General Fund recorded a $1.1 billion operating surplus. This operating
surplus was achieved through legislated tax rate increases and tax base
broadening measures enacted in August 1991 and by controlling expenditures
through numerous cost reduction measures implemented during the fiscal year.
As a result of the operating surplus, the General Fund balance increased to
$87.5 million at June 30, 1992.
Fiscal 1993 Financial Results (GAAP Basis). The fund balance of the
General Fund increases by $611.4 million during the fiscal year to a total of
$698.9 million at June 30, 1993. A continuing recovery of the Commonwealth's
financial condition from the effects of the national economic recession of
1990 and 1991 is demonstrated by this increase in the fund balance.
Fiscal 1994 Budget (Budgetary Basis). The budget estimates revenue
growth of 3.7% over fiscal 1993 actual revenues. The revenue estimate is
based on an expectation of continued economic recovery, but at a slow rate.
Sales tax receipts are projected to rise 4.4% over 1993 receipts while
personal income tax receipts are projected to increase by 3.3%, a rate that
is low because of the tax rate reduction in July 1992. The budget provides
for $14.995 billion of appropriations in fiscal 1994. The largest increase
in appropriations ($235 million) is for the Department of Public Welfare to
meet the increasing costs of medical care and rising caseloads. Other
departments slated to receive large appropriation increases include education
($196 million) and correctional institutions ($104 million).
In February 1994, the Governor recommended $46.4 million of additional
appropriations be enacted for fiscal 1994, raising total appropriations to
$15.041 billion. The largest increase in additional appropriations is $27.3
million to make audit payments to the federal Department of Health and Human
Services. No change to the aggregate Commonwealth revenue estimate was made
although individual tax estimates have been revised to reflect actual receipts
to date and the tax refund estimate was reduced to reflect a favorable
litigation ruling (see "Litigation" section). Through May 1994, General Fund
revenues are slightly ($24.2 million or 2.2%) above estimate as below
corporate estimate tax receipts are being offset by above estimate sales tax,
personal income tax and non-tax revenue receipts.
Realizing that the continuing rise in medical assistance costs cannot be
met from the resources provided by a much slower growing tax revenue base, the
Commonwealth plans to implement programs and financial changes in fiscal 1994
to keep costs within budget limits. The Commonwealth plans to save $247
million by receiving federal reimbursement for hospital services provided to
state general assistance recipients. Prior to this time, these costs were
fully paid by the Commonwealth. In addition, the Commonwealth will continue
to use pooled financing for medical assistance costs using intergovernmental
transfer in place of voluntary contributions as was done in earlier fiscal
years, resulting in an anticipated savings of $99 million.
Proposed Fiscal 1995 Budget. For the fiscal year beginning July 1, 1994,
the Governor has proposed a budget containing a 4.1% increase in
appropriations over the actual and proposed supplemental appropriations for
fiscal 1994. Total appropriations recommended amount to $15.665 billion. The
budget is balanced by drawing down on a projected $267 million unappropriated
surplus for fiscal 1994. The fastest growing portion of the budget continues
to be medical assistance, which is proposed to receive $264 million, or 42.4%,
of the proposed net increase in spending. Other program areas budgeted to
receive major increases are education ($165 million) and corrections ($126
million). The proposed budget recommends a tightening of eligibility criteria
for state-financed welfare benefits as a cost reduction measure.
The Governor's proposal also includes a recommended reduction in the
corporate net income tax rate from 12.25% to 9.99% over a three year period.
The corporate tax cut and a proposed increase in poverty exemption for the
personal income tax are estimated to cost $124.7 million in fiscal 1995. The
recommended budget includes Commonwealth revenue growth of 4.7% without
including the effect of the proposed tax reduction. The revenue estimate is
based on the expectation of a continued slow national economy recovery and
continued economic growth of the Pennsylvania economy at a rate slightly below
the national rate. Total estimated Commonwealth revenue, adjusted for refunds
and the proposed tax reduction, is $15.400 billion.
Commonwealth Debt. Current constitutional provisions permit Pennsylvania
to issue the following types of debt: (i) debt to suppress insurrection or
rehabilitate areas affected by disaster, (ii) electorate approved debt, (iii)
debt for capital projects subject to an aggregate debt limit of 1.75 times the
annual average tax revenues of the preceding five fiscal years and (iv) tax
anticipation notes payable in the fiscal year of issuance. All debt except
tax anticipation notes must be amortized in substantial and regular amounts.
General obligation debt totaled $5.039 billion at June 30, 1993. Over
the 10-year period ended June 30, 1993, total outstanding general obligation
debt increased at an annual rate of 1.2%; for the five year period ended June
30, 1993, it increased at an annual rate of 1.4%. All outstanding general
obligation bonds of the Commonwealth are rated AA- by Standard and Poor's
Corporation, A1 by Moody's Investors Service, and AA- by Fitch Investors
Service. The ratings reflect only the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes which must mature
within the fiscal year of issuance. The principal amount issued, when added
to that already outstanding, may not exceed in the aggregate 20% of the
revenues estimated to accrue to the appropriate fund in the fiscal year. The
Commonwealth is not permitted to fund deficits between fiscal years with any
form of debt. All year-end deficit balances must be funded within the
succeeding fiscal year's budget. Pennsylvania issued a total of $400.0
million of tax anticipation notes for the account of the General Fund in
fiscal 1994, all of which will mature on June 30, 1994, and will be paid from
fiscal 1994 General Fund receipts.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years. The Commonwealth currently has no bond anticipation notes outstanding.
State-related Obligations. Certain state-created agencies have statutory
authorization to incur debt for which legislation providing for state
appropriations to pay debt service thereon is not required. The debt of these
agencies is supported by assets of, or revenues derived from, the various
projects financed and the debt of such agencies is not an obligation of
Pennsylvania although some of the agencies are indirectly dependent on
Commonwealth appropriations. The following agencies had debt currently
outstanding as of December 31, 1993: Delaware River Joint Toll Bridge
Commission ($57.4 million), Delaware River Port Authority ($239.4 million),
Pennsylvania Economic Development Financing Authority ($380.8 million),
Pennsylvania Energy Development Authority ($163.7 million), Pennsylvania
Higher Education Assistance Agency ($1.159 billion), Pennsylvania Higher
Education Facilities Authority ($1.806 billion), Pennsylvania Industrial
Development Authority ($256.4 million), Pennsylvania Infrastructure Investment
Authority ($192.5 million), Pennsylvania Turnpike Commission ($1.153 billion),
Philadelphia Regional Port Authority ($53.8 million) and the State Public
School Building Authority ($306.4 million). In addition, the Governor is
statutorily required to place in the budget of the Commonwealth an amount
sufficient to make up any deficiency in the capital reserve fund created for,
or to avoid default on, bonds issued by the Pennsylvania Housing Finance
Agency ($2.066 billion of revenue bonds and notes outstanding as of December
31, 1993), and an amount of funds sufficient to alleviate any deficiency that
may arise in the debt service reserve fund for bonds issued by The Hospitals
and Higher Education Facilities Authority of Philadelphia. The budget as
finally adopted by the legislation may or may not include the amounts
requested by the Governor.
Local Government Debt. Local government in Pennsylvania consists of
numerous individual units. Each unit is distinct and independent of other
local units, although they may overlap geographically. There is extensive
general legislation applying to local government. For example, the Local
Government Unit Debt Act provides for uniform debt limits for local government
units (except the City of Philadelphia), including municipalities and school
districts, and prescribes methods of incurring, evidencing, securing and
collecting debt. Under the Local Government Unit Debt Act, the ability of
Pennsylvania municipalities and school districts to engage in general
obligation borrowing without electoral approval is generally limited by their
recent revenue collection experience. Generally, such subdivisions can levy
real property taxes unlimited as to rate or amount to pay debt service on
general obligation borrowings. City of Philadelphia debt is limited by the
Pennsylvania Constitution to a percentage of the assessed value of taxable
realty in the City, except debt which is supported by project revenues and is
excluded from this limit.
Municipalities may also issue revenue obligations without limit and
without affecting their general obligation borrowing capacity if the
obligations are projected to be paid solely from project revenues. Municipal
authorities and industrial development authorities are also widespread in
Pennsylvania. An authority is organized by a municipality acting singly or
jointly with another municipality and is governed by a Board appointed by the
governing unit of the creating municipality or municipalities. Typically,
authorities are established to acquire, own and lease or operate one or more
projects and to borrow money and issue revenue bonds to finance them.
Projects of municipal authorities may include public facilities, such as
public buildings, parking facilities, airports, waterworks and sewage
facilities as well as projects for certain private not-for-profit entities,
such as hospitals and universities. A project may be leased by a municipal
authority to a municipality or school district or to a private user, in which
event the lessee is obligated to make rental payments sufficient to pay the
debt service on obligations issued by the authority. In cases involving
revenue producing public facilities, such as water or sewer systems, a
municipal authority may operate the system itself. The debt of municipal
authorities is not governed by the Local Government Unit Debt Act except
indirectly when the debt is guaranteed by a local government unit or the
project is leased to such a unit. Industrial development authorities issue
bonds to acquire or construct facilities for use by private companies, and the
debt service is normally dependent solely on the credit of the private user.
Litigation. Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service on
its obligations, including suits relating to the following matters: (a)
approximately 3,500 tort suits are pending against the Commonwealth pursuant
to the General Assembly's 1978 approval of a limited waiver of sovereign
immunity which permits recovery of damages for any loss up to $250,000 per
person and $1,000,000 per accident ($17.5 million appropriated from the Motor
License Fund in fiscal 1993 has been increased to $32.0 million for fiscal
1994 to fund possible higher and more numerous payments resulting from recent
decisions by the Pennsylvania Supreme Court); (b) the ACLU filed suit in April
1990 in federal court demanding additional funding for child welfare services
(no available estimates of potential liability), which the Commonwealth is
seeking to have dismissed based on, among other things, the settlement in a
similar Commonwealth court action that provided for more funding in fiscal
1991 as well as a commitment to pay to counties $30.0 million over 5 years
(on April 12, 1993, the court dismissed all claims except for the
constitutional claims of some of the plaintiffs and two Americans with
Disabilities Act claims); (c) in 1987, the Supreme Court of Pennsylvania held
that the statutory scheme for county funding of the judicial system was in
conflict with the Pennsylvania Constitution but stayed judgment pending
enactment by the legislature of funding consistent with the opinion (the
legislature has yet to consider legislation implementing the judgement); (d)
several banks have filed suit against the Commonwealth contesting the
constitutionality of a 1989 law imposing a bank shares tax on banking
institutions (potential liability estimated at $1.024 billion through December
1993, plus appropriate statutory interest); (e) in November 1990, the ACLU
brought a class action suit on behalf of the inmates in thirteen Commonwealth
correctional institutions challenging confinement conditions and including a
variety of other allegations, and, although no damages are sought, if
injunctive relief is granted the cost to the Commonwealth in capital and
personnel expenses may be substantial (trial began on December 6, 1993;
prompted by settlement negotiations between the parties, the court recessed
on January 3, 1994; trial will resume if settlement is not reached); (f) on
December 10, 1993, the Pennsylvania Supreme Court overturned a decision of the
Commonwealth Court ruling that dividends received by a corporate taxpayer
which are accounted for under the equity method of accounting are not
includible in average net income for purposes of determining capital stock
value under the fixed formula (the decision permits the Commonwealth to
release $147 million held in reserve for potential tax refund); (g) in 1991,
a consortium of public interest law firms filed a class action suit alleging
that the Commonwealth had failed to comply with the 1989 federal mandate with
respect to certain services for Medicaid-eligible children under the age of
21, which if the relief requested were granted, would cost the Commonwealth
approximately $98 million; (h) litigation has been filed in both state and
federal court by an association of rural and small schools and several
individual school districts and parents challenging the constitutionality of
the Commonwealth's system for funding local school districts -- the federal
case has been stayed pending resolution of the state case and the state case
is in the pre-trial discovery stage (no available estimate of potential
liability); and (i) approximately 150 hospitals challenged the state's fiscal
1989 and 1990 reimbursement rates for inpatient hospital services provided to
needy citizens under the Medical Assistance Program, and these lawsuits were
settled in May 1991, with the dismissal of the litigation pending the disposal
of one appeal.
Philadelphia. For the fiscal year ending June 30, 1991, Philadelphia
experienced a cumulative General Fund balance deficit of $153.5 million. The
audit findings for the fiscal year ending June 30, 1992 place the cumulative
General Fund balance deficit at $224.9 million.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities
in remedying fiscal emergencies was enacted by the General Assembly and
approved by the Governor in June 1991. PICA is designed to provide assistance
through the issuance of funding debt to liquidate budget deficits and to make
factual findings and recommendations to the assisted city concerning its
budgetary and fiscal affairs. An intergovernmental cooperation agreement
between Philadelphia and PICA was approved by City Council on January 3, 1992,
and approved by the PICA Board and signed by the Mayor on January 8, 1992.
At this time, Philadelphia is operating under a five year fiscal plan approved
by PICA on April 6, 1992. Full implementation of the five year plan was
delayed due to labor negotiations that were not completed until October 1992,
three months after the expiration of the old labor contracts. The terms of
the new labor contracts are estimated to cost approximately $144.0 million
more than what was budgeted in the original five year plan. An amended five
year plan was approved by PICA in May 1993. The audit findings show a surplus
of approximately $3 million for the fiscal year ending June 30, 1993.
The fiscal 1994 budget projects no deficit and a balanced budget for the
year ended June 30, 1994. The Mayor presented the latest update of the five
year financial plan on January 13, 1994, which is being considered by PICA.
In June 1992, PICA issued $474.6 million of its Special Tax Revenue Bonds
to provide financial assistance to Philadelphia and to liquidate the
cumulative General Fund balance deficit. In July 1993, PICA issued $643.4
million of Special Tax Revenue Bonds to refund certain general obligation
bonds of the city and to fund additional capital projects.
APPENDIX B
Description of Standard & Poor's Corporation ("S&P"), Moody's Investors
Service, Inc. ("Moody's") and Fitch Investors Service, Inc. ("Fitch") ratings:
S&P
Municipal Bond Ratings
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A
Principal and interest payments on bonds in this category are regarded
as safe. This rating describes the third strongest capacity for payment of
debt service. It differs from the two higher ratings because:
General Obligation Bonds -- There is some weakness in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at
some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Of the investment grade, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of debt
service. The difference between "A" and "BBB" rating is that the latter shows
more than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC, CC, C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB
Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
B
Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC
Debt rated CCC has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payments of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to pay
interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Municipal Note Ratings
SP-1
The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus sign (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than
365 days.
A
Issues assigned this rating are regarded as having the greatest capacity
for timely payment. Issues in this category are delineated with the numbers
1, 2 and 3 to indicate the relative degree of safety.
A-1
This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation.
A-2
Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's
Municipal Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and
in categories below B. The modifier 1 indicates a ranking for the security
in the higher end of a rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of a rating
category.
Municipal Note Ratings
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over
the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature
is not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics
as payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with
no or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as MIG
1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Commercial Paper Ratings
The rating Prime-1 (P-1) is the highest commercial paper rating assigned
by Moody's. Issuers of P-1 paper must have a superior capacity for repayment
of short-term promissory obligations, and will normally be evidenced by
leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate
reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Fitch
Municipal Bond Ratings
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest
and/or principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or
principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months or the
DDD, DD or D categories.
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
<TABLE>
<CAPTION>
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS NOVEMBER 30, 1994
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS_94.7% AMOUNT VALUE
----------- -----------
<S> <C> <C>
PENNSYLVANIA_89.8%
Allegheny County Hospital Development Authority, Revenue, Refunding
(Magee Womens Hospital) 5.875%, 10/1/2002 (Insured; FGIC)............... $ 500,000 $ 494,550
Berks County, GO 5.60%, 11/15/2007.......................................... 545,000 496,233
Bucks County 6.05%, 3/1/2002................................................ 500,000 506,965
Chester County Health and Educational Facilities Authority (Main Line Health
System):
4.90%, 5/15/2004........................................................ 350,000 303,485
5.40%, 5/15/2009........................................................ 500,000 425,935
Clinton County Industrial Development Authority, PCR, Refunding
(International Paper Co. Project) 5.375%, 5/1/2004...................... 500,000 460,475
Dauphin County General Authority, Revenue:
6%, 12/1/2006........................................................... 785,000 762,149
5%, 6/1/2026 (a)........................................................ 500,000 486,585
Delaware County Authority, HR (Crozer-Chester Medical Center)
4.75%, 12/15/2003 (Insured; MBIA)....................................... 430,000 374,599
Delaware County Industrial Development Authority, Revenue, Refunding
(Martins Run Project) 5.60%, 12/15/2002................................. 750,000 678,518
Harrisburg Water Authority, Revenue 5.30%, 7/15/2004 (Insured; FGIC)........ 300,000 275,925
Lackawanna County, Refunding 4.90%, 12/1/2006 (Insured; AMBAC).............. 500,000 420,175
Lancaster Higher Educational Authority, College Revenue
(Franklin & Marshall College Project) 5%, 4/15/2002 (Insured; MBIA)..... 350,000 324,044
Lehigh County General Purpose Authority, Revenue (Saint Lukes Hospital
Project)
4.75%, 11/15/2000 (Insured; AMBAC)...................................... 345,000 317,555
Northeastern Hospital and Education Authority, University Revenue, Refunding
(Wilkes University) 5.60%, 10/1/2005.................................... 200,000 177,148
Pennsylvania Convention Center Authority, Revenue, Refunding 6.25%, 9/1/2004 750,000 724,672
Pennsylvania Economic Development Financing Authority, RRR
(Northampton Generating Project) 6.40%, 1/1/2009........................ 500,000 441,140
Pennsylvania, GO:
5%, 5/1/2003............................................................ 500,000 453,735
5%, 9/1/2007............................................................ 350,000 295,214
Pennsylvania Higher Educational Facilities Authority:
College and Universities Revenue (Delaware Valley College of Science and
Agriculture)
6.50%, 4/1/2008....................................................... 790,000 760,644
Health Services Revenue (University of Pennsylvania) 5.75%, 1/1/2006.... 500,000 467,290
Pennsylvania Housing Finance Agency, Single Family Mortgage:
5.95%, 10/1/2003........................................................ 365,000 354,605
6.20%, 4/1/2005......................................................... 410,000 393,071
6.20%, 10/1/2005........................................................ 420,000 402,087
6.10%, 4/1/2006......................................................... 455,000 437,692
6.10%, 10/1/2006........................................................ 465,000 446,791
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) NOVEMBER 30, 1994
PRINCIPAL
LONG-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
----------- -----------
PENNSYLVANIA (CONTINUED)
Pennsylvania Turnpike Commission, Turnpike Revenue, Refunding:
5.35%, 12/1/2002 (Insured; FGIC)........................................ $ 255,000 $ 242,564
5.45%, 12/1/2002........................................................ 500,000 473,300
Philadelphia, GO 5.70%, 11/15/2006 (Insured; FGIC) (b)...................... 1,000,000 916,260
Philadelphia, Revenue:
Gas Works 4.60%, 8/1/2003 (Insured; MBIA)............................... 500,000 430,560
Hospital And Higher Education Facilities Authority:
(Community College) 5.90%, 5/1/2007................................... 445,000 423,542
(Graduate Health Systems) 5.10%, 7/1/1998............................. 350,000 335,195
(Temple University) 6.50%, 11/15/2008................................. 1,000,000 918,370
School District 5.75%, 7/1/2007 (Insured; MBIA)......................... 600,000 552,000
Water and Wastewater, Refunding:
4.25%, 6/15/1996...................................................... 500,000 491,800
5.50%, 6/15/2003...................................................... 1,000,000 938,310
5.50%, 6/15/2006...................................................... 250,000 220,450
Philadelphia Municipal Authority, LR, Refunding:
6%, 7/15/2003........................................................... 500,000 481,380
(Criminal Justice Purpose) 5.40%, 11/15/2006 (Insured; FGIC)............ 500,000 452,810
Pittsburgh, GO, Refunding 4.70%, 9/1/2001 (Insured; AMBAC).................. 250,000 227,477
Pittsburgh Water and Sewer Authority, Water and Sewer Systems Revenue
4.70%, 9/1/2004 (Insured; FGIC)......................................... 300,000 256,929
Schuylkill County Industrial Development Authority, RRR, Refunding
(Schuylkill Energy Resource) 6.50%, 1/1/2010............................ 300,000 264,285
Scranton-Lackawanna Health and Welfare Authority, Revenue
(University of Scranton Project) 5.80%, 3/1/2000........................ 500,000 484,790
Wilkinsburg Joint Water Authority, Water Revenue
6.15%, 8/15/2009 (Prerefunded 8/15/2002)(c)............................. 500,000 506,360
U.S. RELATED_4.9%
Puerto Rico, GO 5.40%, 7/1/2003............................................. 200,000 185,440
Puerto Rico, Electric Power Revenue, Refunding:
5.90%, 7/1/2002......................................................... 250,000 246,435
6%, 7/1/2006............................................................ 225,000 214,517
Puerto Rico Highway and Transportation Authority, Highway Revenue, Refunding
5%, 7/1/2002............................................................ 225,000 203,864
Puerto Rico Housing Bank and Finance Agency, Single Family, Refunding 5%, 12/1/2002 300,000 267,531
----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (cost $22,986,754).................... $21,415,451
===========
SHORT-TERM MUNICIPAL INVESTMENTS_5.3%
PENNSYLVANIA:
Allegheny County Higher Education Building Authority, VRDN
(University of Pittsburgh Project) 3.52% (LOC; Union Bank of Switzerland) (d,e) $ 300,000 $ 300,000
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF INVESTMENTS (CONTINUED) NOVEMBER 30, 1994
PRINCIPAL
SHORT-TERM MUNICIPAL INVESTMENTS (CONTINUED) AMOUNT VALUE
----------- -----------
PENNSYLVANIA (CONTINUED):
Bucks County Industrial Development Authority, VRDN (Oxford Falls)
4.12% (Guaranteed; Household Finance Corp.)(d).......................... $ 200,000 $ 200,000
Warren County Hospital Authority, VRDN (Warren General Hospital Authority)
3.80% (LOC; PNC Bank) (d,e)............................................. 700,000 700,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS (cost $1,200,000).................... $ 1,200,000
===========
TOTAL INVESTMENTS_100.0% (cost $24,186,754)................................ $22,615,451
===========
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF ABBREVIATIONS
<S> <C> <S> <C>
AMBAC American Municipal Bond Assurance Corporation LR Lease Revenue
FGIC Federal Guaranty Insurance Company MBIA Municipal Bond Investors Assurance
GO General Obligation PCR Pollution Control Revenue
HR Hospital Revenue RRR Resources Recovery Revenue
LOC Letter of Credit VRDN Variable Rate Demand Notes
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF COMBINED RATINGS (UNAUDITED)
FITCH (F) OR MOODY'S OR STANDARD & POOR'S PERCENTAGE OF VALUE
- --------- -------- ---------------- ------------------
<S> <C> <C> <C>
AAA Aaa AAA 36.0%
AA Aa AA 19.8
A A A 13.4
BBB Baa BBB 15.2
BB Ba BB 5.3
F1 P1 A1 5.3
Not Rated (g) Not Rated (g) Not Rated (g) 5.0
-----
100.0%
======
</TABLE>
NOTES TO STATEMENT OF INVESTMENTS:
(a) Purchased on delayed delivery basis.
(b) Wholly held by the custodian in a segregated account as collateral
for delayed delivery securities.
(c) Bonds which are prerefunded are collateralized by U.S. Government
securities which are held in escrow and are used to pay principal and
interest on the municipal issue and to retire the bonds in full at the
earliest refunding date.
(d) Securities payable on demand. The interest rate, which is subject to
change, is based upon bank prime rates or an index of market interest
rates.
(e) Secured by letters of credit.
(f) Fitch currently provides creditworthiness information for a limited
number of investments.
(g) Securities which, while not rated by Fitch, Moody's or Standard &
Poor's have been determined by the Fund's Board of Trustees to be of
comparable quality to those rated securities in which the Fund may
invest.
See notes to financial statements.
<TABLE>
<CAPTION>
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1994
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $24,186,754)_see statement...................................... $22,615,451
Cash.................................................................... 11,875
Interest receivable..................................................... 364,373
Prepaid expenses and other assets_Note 1(e)............................. 49,239
Due from The Dreyfus Corporation........................................ 122,875
-----------
23,163,813
LIABILITIES:
Payable for investment securities purchased............................. $499,375
Accrued expenses and other liabilities.................................. 65,445 564,820
-----------
NET ASSETS ................................................................ $22,598,993
===========
REPRESENTED BY:
Paid-in capital......................................................... $24,277,626
Accumulated net realized (loss) on investments.......................... (107,330)
Accumulated gross unrealized (depreciation) on investments.............. (1,571,303)
-----------
NET ASSETS at value applicable to 1,909,451 shares outstanding
(unlimited number of $.001 par value shares of Beneficial
Interest authorized).................................................... $22,598,993
============
NET ASSET VALUE, offering and redemption price per share
($22,598,993 / 1,909,451 shares)........................................ $11.84
======
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
FROM DECEMBER 16, 1993 (COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30, 1994
<S> <C> <C>
INVESTMENT INCOME:
INTEREST INCOME......................................................... $ 806,326
EXPENSES:
Management fee_Note 2(a).............................................. $ 93,306
Shareholder servicing costs_Note 2(b)................................. 29,631
Auditing fees......................................................... 20,061
Registration fees..................................................... 15,847
Trustees' fees and expenses_Note 2(c)................................. 12,982
Legal fees............................................................ 12,973
Organization expenses_Note 1(e)....................................... 11,074
Prospectus and shareholders' reports.................................. 10,551
Custodian fees........................................................ 3,185
Miscellaneous......................................................... 6,571
-----------
216,181
Less_expense reimbursement from Manager due to
undertaking_Note 2(a)............................................. 216,181
-----------
TOTAL EXPENSES.................................................. --
------------
INVESTMENT INCOME_NET.......................................... 806,326
REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS:
Net realized (loss) on investments_Note 3............................... $ (107,330)
Net unrealized (depreciation) on investments............................ (1,571,303)
-----------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS............... (1,678,633)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................... $ (872,307)
=============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
FROM DECEMBER 16, 1993 (COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30, 1994
<S> <C>
OPERATIONS:
Investment income_net............................................................... $ 806,326
Net realized (loss) on investments.................................................. (107,330)
Net unrealized (depreciation) on investments for the period......................... (1,571,303)
--------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................ (872,307)
--------------
DIVIDENDS TO SHAREHOLDERS FROM;
Investment income_net............................................................... (806,326)
--------------
BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from shares sold....................................................... 35,130,538
Dividends reinvested................................................................ 590,723
Cost of shares redeemed............................................................. (11,543,635)
--------------
INCREASE IN NET ASSETS FROM BENEFICIAL INTEREST TRANSACTIONS...................... 24,177,626
--------------
TOTAL INCREASE IN NET ASSETS.................................................. 22,498,993
NET ASSETS:
Beginning of period_Note 1.......................................................... 100,000
--------------
End of period....................................................................... $ 22,598,993
============
SHARES
--------------
CAPITAL SHARE TRANSACTIONS:
Shares sold......................................................................... 2,782,274
Shares issued for dividends reinvested.............................................. 47,728
Shares redeemed..................................................................... (928,551)
--------------
NET INCREASE IN SHARES OUTSTANDING................................................ 1,901,451
============
See notes to financial statements.
</TABLE>
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
Reference is made to page 3 of the Fund's Prospectus dated March 31, 1995.
See notes to financial statements.
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1_SIGNIFICANT ACCOUNTING POLICIES:
Dreyfus Pennsylvania Intermediate Municipal Bond Fund (the "Fund") was
organized as a Massachusetts business trust on March 12, 1992, and had no
operations until December 16, 1993 (commencement of operations) other than
matters relating to its organization and registration as a non-diversified
open-end management investment company under the Investment Company Act of
1940 ("Act") and the Securities Act of 1933 and the sale and issuance of
8,000 shares of Beneficial Interest ("Initial Shares") to The Dreyfus
Corporation ("Manager"). Dreyfus Service Corporation, until August 24, 1994,
acted as the exclusive distributor of the Fund's shares, which are sold to
the public without a sales charge. Dreyfus Service Corporation is a
wholly-owned subsidiary of The Dreyfus Corporation ("Manager"). Effective
August 24, 1994, the Manager became a direct subsidiary of Mellon Bank, N.A.
On August 24, 1994, Premier Mutual Fund Services, Inc. (the
"Distributor") was engaged as the Fund's distributor. The Distributor,
located at One Exchange Place, Boston, Massachusetts 02109, is a wholly-owned
subsidiary of Institutional Administration Services, Inc., a provider of
mutual fund administration services, the parent company of which is Boston
Institutional Group, Inc.
(A) PORTFOLIO VALUATION: The Fund's investments are valued each business
day by an independent pricing service ("Service") approved by the Board of
Trustees. Investments for which quoted bid prices are readily available and
are representative of the bid side of the market in the judgment of the
Service are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Other investments (which constitute a majority of the portfolio securities)
are carried at fair value as determined by the Service, based on methods
which include consideration of: yields or prices of municipal securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions.
(B) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities
transactions are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded on the identified cost basis. Interest
income, adjusted for amortization of premiums and original issue discounts on
investments, is earned from settlement date and recognized on the accrual
basis. Securities purchased or sold on a when-issued or delayed-delivery
basis may be settled a month or more after the trade date.
The Fund follows an investment policy of investing primarily in municipal
obligations of one state. Economic changes affecting the state and certain of
its public bodies and municipalities may affect the ability of issuers within
the state to pay interest on, or repay principal of, municipal obligations
held by the Fund.
(C) DIVIDENDS TO SHAREHOLDERS: It is the policy of the Fund to declare
dividends daily from investment income-net. Such dividends are paid monthly.
Dividends from net realized capital gain , if any, are normally declared and
paid annually, but the Fund may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code. To
the extent that net realized capital gain can be offset by capital loss
carryovers, it is the policy of the Fund not to distribute such gain.
(D) FEDERAL INCOME TAXES: It is the policy of the Fund to continue to
qualify as a regulated investment company, which can distribute tax exempt
dividends, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of income and net realized capital
gain sufficient to relieve it from substantially all Federal income and
excise taxes.
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund has an unused capital loss carryover of approximately $1,400
available for Federal income tax purposes to be applied against future net
securities profits, if any realized subsequent to November 30, 1994. The
carryover does not include net realized securities losses from November 1,
1994 through November 30, 1994 which are treated, for Federal income tax
purposes, as arising in fiscal 1995. If not applied, the carryover expires in
fiscal 2002.
(E) OTHER: Organization expenses paid by the Fund are included in prepaid
expenses and are being amortized to operations from December 16, 1993, the
date operations commenced, over the period during which it is expected that a
benefit will be realized, not to exceed five years. At November 30, 1994, the
unamortized balance of such expenses amounted to $44,296. In the event that
any of the Initial Shares are redeemed during the amortization period, the
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of such shares being redeemed bears to
the number of such shares outstanding at the time of such redemption.
NOTE 2_MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) Pursuant to a management agreement ("Agreement") with the Manager,
the management fee is computed at the annual rate of .60 of 1% of the average
daily value of the Fund's net assets and is payable monthly. The Agreement
provides for an expense reimbursement from the Manager should the Fund's
aggregate expenses, exclusive of taxes, brokerage, interest on borrowings and
extraordinary expenses, exceed the expense limitation of any state having
jurisdiction over the Fund for any full fiscal year. However, the Manager had
undertaken, from December 16, 1993 through December 31, 1994, or until such
time as the net assets of the Fund exceed $50 million, regardless of whether
they remain at that level, to reimburse all fees and expenses of the Fund.
The expense reimbursement, pursuant to the undertaking, amounted to $216,181
for the period ended November 30, 1994.
The Manager has currently undertaken through March 31, 1995 or until such
time as the net assets of the Fund exceed $50 million, regardless of whether
they remain at that level, to waive receipt of the management fee paid by and
assume all others expenses of the Fund, to the extent that such expenses
(excluding certain expenses as described above) exceed an annual rate of .25
of 1% of the average daily value of the Fund's net assets.
The undertaking may be modified by the Manager from time to time,
provided that the resulting expense reimbursement would not be less than the
amount required pursuant to the Agreement.
(B) Pursuant to the Fund's Shareholder Services Plan, the Fund reimburses
Dreyfus Service Corporation an amount not to exceed an annual rate of .25 of
1% of the value of the Fund's average daily net assets for servicing
shareholder accounts. The services provided may include personal services
relating to shareholder accounts, such as answering shareholder inquiries
regarding the Fund and providing reports and other information, and services
related to the maintenance of shareholder accounts. During the period ended
November 30, 1994, no amounts were charged to the Fund pursuant to the
Shareholder Services Plan.
(C) Prior to August 24, 1994, certain officers and trustees of the Fund
were "affiliated persons," as defined in the Act, of the Manager and/or
Dreyfus Service Corporation. Each trustee who is not an "affiliated person"
receives an annual fee of $1,000 and an attendance fee of $250 per meeting.
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3_SECURITIES TRANSACTIONS:
The aggregate amount of purchases and sales of investment securities
amounted to $42,689,732 and $18,384,553, respectively, for the period ended
November 30, 1994, and consisted entirely of long-term and short-term
municipal investments.
At November 30, 1994, the cost of investments for Federal income tax
purposes was substantially the same as the cost for financial reporting
purposes (see the Statement of Investments).
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF TRUSTEES
DREYFUS PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND
We have audited the accompanying statement of assets and liabilities of
Dreyfus Pennsylvania Intermediate Municipal Bond Fund, including the
statement of investments, as of November 30, 1994, and the related statements
of operations and changes in net assets and financial highlights for the
period from December 16, 1993 (commencement of operations) to November 30,
1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1994 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Dreyfus Pennsylvania Intermediate Municipal Bond Fund at November
30, 1994, and the results of its operations, the changes in its net assets
and the financial highlights for the period from December 16, 1993 to
November 30, 1994, in conformity with generally accepted accounting
principles.
(logo signature)
New York, New York
January 5, 1995
